Neither Dismal nor a Science

(Or, how the way we conceptualize the discipline of Economics have hobbled actual education in economics. But that's a slightly less snappy title.)

Those of you who have been reading this blog knows that my friend RJ is a economics skeptic. Especially of macroeconomics, which he regards as little better than astrology -- relevent insofar as it's widely believed, but with bullshit where the underlying concepts should be. I identify with RJ because we went to the same college and took the same intro to Econ class, Econ 11, that left us with the same impression of economics as an unempirical science, blind to its own inherent ideological bent. A misguided attempt to distill human behavior into laughably simple graphs. Consisting entirely of arguments standing on assumptions so broad and unwarrented that the conclusions reached have no meaning. Basically, a pseudo-science so divorced from reality and rife with fudge factors that it should be dismissed out of hand for being intellectually inelegant, if nothing else. And don't think that RJ and I just didn't 'get it'. We both recieved good grades in Econ 11 for very little work, and if nothing else that only added to our contempt for the subject, especially for RJ, who is very mathematically inclined.

I'm assuming that if you've read this far you actually agree with me that RJ is dead wrong and that economics is actually an essential area of study, in addition to being fascinating and rigorous. So let us discuss where the way we teach economics went so wrong and what we can do to make it right. Much thanks to all the commenters on my first post on the subject who came up with much interesting discussion.

1. Economics is not like the other sciences. Acknowledge that.
There is no giant econ lab where we can hold all other variables constant and vary the money supply or tax rate and see what happens. This is very troubling for students whose previous paradigm in studying science has been deeply rooted in the scientific method. By necessity, the study of economics often have to work backwards from real-world occurances, occurances so mired in culture, history and politics that it's often difficult just to deduce what factors are significant. Wasn't there a quote by Keynes to the effect that you don't need to be a great mathematician, historian, philosopher etc. to be an economist, but you need to be a little bit of everything? Why not embrace this need for all kinds of intellectual skills instead of retreating into the kind of defensiveness I hear so much of: "Yuh-huh! We are soooo a science. Like physics. And biology. Just as good. Look, we use graphs and shit."

2. Always think to yourself: Would this sound crazy to the proverbial man-on-the-street?
When it comes to going forward in economic theory, logical inference is often the tool we use instead of experimentation. We make broad stroke assumptions such as "each individual will act to maximize his utility" or "if the price is driven down to zero, demand is infinite" not because we are intellectually lazy, but because making those assumptions allow us to simplify a real-life situation the point where we can apply logic. If x, then y. Never forget that an assumption that might seem basic and uncontroversial to an economist can actually be deeply counterintuitive and frankly absurd to a student. Demand can be infinite? But I only need one bicycle, even if they're giving them away! Profits always driven down to zero? So why does anybody ever bother to sell anything?

Imagine a theoretical physics class in which you are told to memorize the twin paradox and be prepared to regurgitate a schematic drawing of Schroedinger's Cat's without being walked through exactly how those counterintuitive outcomes came about? It's what Econ students are being told to do every day -- to accept what's in front of them at face value and memorize which little square to color in as the consumer surplus. Is it no wonder that students who are intelligent often wind up insulted rather than educated?

3. Separate the normative from the positive
It is notoriously hard to keep one's politics out of one's economics. But it is important to strive to be as objective as possible because when ideology trumps reality, economics becomes as dangerous as a faulty chart of a rocky shoal. It is doubly important that teachers try their best to separate what they think should be from what is because they are going to be introducing economics to students of a variety of political backgrounds.

Even without being a big lefty, I was alienated from the first day of my econ class because it was declared that the argument in economics was over, and the Marxists lost. That apart from a few leftist holdouts like Umass (insert rolling eyeballs) all economic departments across the country agree on this stuff. I know what my profs were trying to do -- cram in the basics of economics in one short semester. No time for the whys and wherefores. But students dislike being force-fed conclusions without hearing the arguments. And we especially dislike the feeling that we're imbibing an ideological stance rather than knowledge. I'm not saying my profs were trying to indoctrinate us. I'm saying that in their attempt to fill our heads with their ideas as expeditiously as possible, they're not working to convince their students of the legitimacy of those ideas beyond saying "trust me on this one."

3a. A corollary: Problem sets are not a good place for editorializing
Look graph 78a on page 234. The government has put a ceiling on the rent of properties in Jenny's town. Is Jenny better off? Do you even need to look at the graph? That would be a bit of a waste of time, wouldn't it, since this is blatently a "government-actions-have-unintended-consequences-that-end up-hurting-the-very-people-they-are-trying-to-help" question.

4. Economics is all around us
The way economics is taught is very compartmentized. You have yer micro and you have yer macro and it can appear that this stuff only applies to firms making widgets and perfect markets which never fail to find equilibrium. Instead, I think economics would be much more compelling if professors really hammer home its most fundamental definition -- the study of the distribution of scarce resources. You pay 28 extra cents for a box of brand-name flakes rather than generic after seeing $500,000 worth of commercials. That's economics. Your parents were able to buy the house they always wanted after interest rates dropped below 6%. That's economics too. This is why I am so psyched about Freakonomics -- it's economics as a tool that cuts away the noise and reveal the fascinating underlying patterns in everyday life rather than the abstract and rarified realm of widgets.

5. "Humans aren't Billiard Balls"*
But sometimes we have to treat them as if they are (see 2.)
Yep. I learnt how to calculate the value of a human life in econ 11. Say if you're not willing to pay $500 for a safety device in your car that will have a 1/10,000 chance of saving your life. Multiply $500 by 10,000 and hey presto, you life as valued by you is worth five million bucks. Nifty? I didn't think so at the time. There is something that is very off-putting about the way economics reduces humanity to numbers, from our motivation, to our values, even our lives. Again, I think the way to get over this aversion is to hammer home the whys and wherefores of economics -- without quantification we cannot see patterns in the aggregate, and without seeing the patterns we cannot use economics to make our lives better. We keep track of the GDP because it's growth tends to mirror increasing prosperity. But we must never lose sight of the fact that we want the GDP to increase because of the human happiness it represents, not as a absolute good in and of itself.

Heck, this post is already too long. So I'll just end with an exhortation to everyone teaching Econ out there. Don't make your goal to churn out a classful of Wall Street Journal readers who can reproduce comparative statics on command. Try and tell your students why economics is important in our lives. Leave widgetland behind as much as you can and bring the concepts into the real world. Teach the models, but acknowledge their deficiencies. Praise the free market, but also show its limitations. Teach the history of economics, how Adam Smith's invisible hand is a reaction to the overbearing government of the day, and how Keynes is in turn a reaction to Smith. Don't forget to note the hubris of the economists who thought they had recessions licked in the 60s. I'll let commenter Colin Danby, fellow ex-econ-skeptic and now turned econ teacher have the last word:

When I teach this stuff now, I try to build in student research projects that help them learn to use real-world data, so that at least I can show them by the end of the class that the world is more transparent. But I'd never talk about "believing in" economics -- it's not a religion, it's a social science and still a rather inadequate one.

*Thanks to commenter JRoth for that vivid mental image